Minister for Finance Michael Noonan has committed the Government to reducing Ireland's national debt faster than the EU rules oblige.

In his budget speech, Mr Noonan announced a revised debt-to-gross domestic product (GDP) target of 45 per cent, significantly lower than the 60 per cent currently required under the EU’s Stability and Growth Pact.

He said the Government was aiming to hit the new domestic target by the mid-2020s.

“This will allow future governments to not only apply the rainy day fund but to borrow to mitigate the impact of future shock on the lives of our people,” Mr Noonan said.

The move to set a more stringent target was advocated by Central Bank governor Philip Lane in a pre-budget letter to the Minister. It also follows the 26 per cent upward revision in GDP last year, which saw the ratio of debt to GDP fall from 105 per cent to 78 per cent.

The revision, driven by a cluster of multinationals transferring assets here, was widely seen as unreflective of the true state of the economy.

In his budget speech, Mr Noonan said the current EU target of 60 per cent still posed a significant risk to a small, open economy such as Ireland.

“At this level of debt, I believe there is still risk. Ireland is a small open economy. We depend on international trade. An economic shock in any region of the world impacts on us,” he said.

Financial crisis

On current trends, Mr Noonan forecast the State’s debt-to-GDP ratio would fall to 76 per cent this year, down from a high of a 120 per cent at the height of the financial crisis. He said the uncertainty introduced to the economic outlook by Brexit had prompted the Department of Finance to reduce its forecast for GDP growth to 4.2 per cent this year and 3.5 per cent for 2017.

However, he hinted at the prospect of further growth re visions, warning the ultimate impact of Brexit would depend on the settlement between the UK and the EU.

“The best and most immediate policy under our own control to mitigate this risk is to control the public finances through budgetary policy,” Mr Noonan said.

He also said the best outcome for Ireland was a UK that was still closely linked to the EU, noting that the Government wanted to avoid any moves towards a hard border with Northern Ireland or changes that reverse what is a common economy on this island.

“Whatever the final settlement, what we know with certainty is that Brexit has increased risk to the Irish economy, and as well as introducing specific measures to assist particular sectors of the economy, we must also put in place safety nets to protect us against future economic shocks,” he said.

Tax burden

Mr Noonan said

Budget 2017

would reduce the tax burden on consumers by just under €300 million, comprising €500 million of tax cuts combined with €195 million in tax-raising measures.

Ireland is on track to hit its year-end budget deficit target of 0.9 per cent of GDP, he said, with the deficit falling to 0.4 per cent in 2017.

Mr Noonan is targeting a “structural balance of 1.1 per cent of GDP at the end of 2017, well set to reach our structural deficit target of -0.5 per cent in 2018 and better placed to deal with external shocks and challenges”.

In his address to the Dáil, Mr Noonan said: “We must get away from, forever, the boom and bust cycles that have caused so much grief in the past.”